$2b collection from 3G auction ‘a false target’

Telecom operators reluctant to enter bidding due to high base price

LAHORE - Like other estimates of the cash-strapped government, the claim of $2 billion revenue collection from 3G auction also won’t be materialised as almost all telecom operators have shown reluctance to enter the bidding due to high base price, telecom industry sources have said.The finance minister’s assertion of generating $2 billion from the auction of mere three spectrum licences is a political statement like other such statements, including strengthening rupee value, enhancing foreign reserves, controlling law and order, capping interest rate, restricting inflation and reforming power sector.Experts are of the view that government itself, in the current fiscal year, had budgeted to raise $1.2 billion through 3G licences and now it is aiming to collect $2 billion from it which is almost impossible to achieve as no cellular company is ready to pay more than $500 million.“Only three companies will be issued licences and if each company pays $4,500 million to $500 million on average the total amount will not exceed to $1.5 billion,” said an official of a cellular company. He said, on condition of anonymity, that though Telenor, China Mobile and Pakistan-based Mobilink had shown interest in bidding for the next generation spectrum licences yet they have shown strong reservations on high cost.Economists are of the view that government is battling to overcome macroeconomic issues through privatisation of state-run enterprises, IMF loan and fiscal-tightening measures. But it should adopt a realistic approach instead of fudging the figures and keeping the general public in the dark.They said the previous government of the PPP had budgeted Rs79 billion from auction of 3G in 2012-13 under the head of non-tax revenue income while the incumbent government had revised the budgeted inflow to Rs120 billion under the head of 3G for the current fiscal year to help build foreign exchange reserves and ease pressure on balance of payment.They said $2 billion is an unrealistic amount considering the long term benefits of the technology. “The auction dates, which are not ascertained yet, are drawing closer but the uncertainty surrounding the bidding process remains. Potential bidding parties are unsure about the price and final schedule of bidding,” an industry source said.M Sohail, a noted economist and equity market expert, observed that the biggest hurdle in the process is the base price, which will play a major role in determination of how many telecom companies participate in the process. Moreover, the timing of the auction is also going to be a determining factor in the bidding process, he added.“The government is overlooking the larger picture in pursuit of extracting as much revenue as it can out of the auction process of the technology. The introduction of new technologies such as 3G and 4G will add up to $10.9 billion to the GDP and up to $650 million in tax revenues in the coming six years; by 2020. Moreover, 900,000 jobs will be generated by 2018, principally in the country’s backbone; agriculture, industry and services sector.”Renowned economist and former finance minister Dr Salman Shah warned that further delay in the spectrum auction would have a negative impact on the economy. He said while the sale of the licences is important for the cash-strapped government, if it is to reduce its deficit and improve the balance of payments position, the new technology will revolutionise the country’s telecom industry, drive growth, generate jobs and create more business opportunities. It will further integrate the country into the global economy by helping the industry cut both cost and time in doing business with the rest of the world, he added.Shah said that procedural issues continue to delay the plan to sell 3G licences, depriving the public access to a better technology which is available even to consumers in war-torn Afghanistan, Somalia, Sri Lanka, Bangladesh, Philippines and in many other countries. But Pakistani consumers struggle to transfer data by phone and video streaming which is often interrupted due to old technology.Industry experts, giving the examples of high 3G auction price in the neighbouring countries said that the process was badly affected in India as the country set an unrealistically high price, which resultantly attracted only one bidder in 2013.“Internationally, best practices in the telecom industry include setting a fair price for the bidding, keeping in view the condition of the local market. Moreover, it should be open to public consultation. Besides this, the level of taxation should also be taken into consideration.”Industry experts also stated that no existing telecom company operating in the country, save one, has modernised its infrastructure to make it 3G-enabled. They said that government intends to offer the 3G licence to only three competitors, while there are currently five players in the market. If that happens, the two left-out major operators will be forced to vacate the market sooner or later as they will not be able to offer 3G services. It can be foreseen that only those competitors will be able to survive in the market that offer 3G/4G services on competitive pricing to their customers.

This news was published in The Nation newspaper. Read complete newspaper of 30-Jan-2014 here.